Notion VTec (HOLD) - Acquisition of Plant and Kaiten

Notion VTec (HOLD)

Acquisition of Plant and Kaiten

• Notion VTec (NVB) has entered into a Sales and Purchase Agreement for the purchase of a piece of freehold land in Klang with the size of approximately 2.638 hectares along with a 20-year-old industrial factory erected thereon for a total purchase consideration of RM17.5m.
• NVB will finance 94.3% (RM16.5m) of the purchase consideration with bank borrowing while the remaining with internally generated funds.
• NVB justified the acquisition with expansion purpose hoping to achieve better cost effectiveness and higher level of economy of scale.
• In its second announcement, NVB also went into an agreement to purchase of the remaining 20k ordinary shares (10% of the issued and paid-up capital) of RM1 which it does not already own in Kaiten Precision (M) Sdn Bhd for a total cash consideration of RM1m.
• With full control of Kaiten Precision, NVB intends to restructure the Group with plans for further investment and possible injection of businesses.
• Comments: The transaction cost of the plant is fair as independent valuation quoted at a higher price of RM17.7m.
• Using the monthly rental as the denominator, the payback period of the acquisition is rather long, circa 21 years.
• Based on latest audited financial statement (30 Sept 2011), the borrowings for the purchase will elevate NVB’s gearing ratio marginally, from 0.34x to 0.41x.